I hate annuities and
you should too! Or should you? The cynic’s dilemma… TEXT BY JASON RINDSKOPF
“I HATE ANNUITIES AND YOU SHOULD TOO!” We’ve all seen the ads, and the author has done a terrific job of instilling fear and uncertainty into the minds of retirees and pre-retirees, but has he really done them any favors? Making the blanket statement that you hate annuities is akin to saying that you hate your social security paycheck, your company pension, or your latest lottery payout. When was the last time anyone cursed the government for putting their social security check in your mailbox? I’m pretty sure that when Bubba cashed in his lottery ticket, he was celebrating his winnings all the way to the bank. On the flip side of the coin, operating under the delusion that an annuity is somehow the Holy Grail to financial planning is equally misguided and misinformed. Like any polarizing issue, the root of the problem really boils down to a combination of misinformation and misconceptions, perpetrated ad nauseam by so called industry “experts”. The real question isn’t who is right in this argument, but rather, how can you take
Fundamental Principals of Income Planning Let’s start with basic income planning. Do you ever watch the news after a natural disaster such as a tornado or a hurricane claims its victim community? Picture a place like Tornado Alley, across the Central Plains. After a devastating tornado rolls through and they’re taking inventory of the aftermath, what is left to rebuild from? What is left of the homes and buildings? The foundation, right? Your client’s financial plan is no different. The Great Depression. Black Monday. The tech bubble. The mortgage crisis. These are just a few examples of real life, natural disasters that occur in the financial markets that serve to rock your client’s financial plan to their foundation. And you and we have just as much control over these situations as we do over the next F-5 rolling across the plains of Kansas or Oklahoma. So the question is, what is their foundation built upon? Concrete or sand? For any retiree today, the concrete and rebar that serves as the foundation of their fiscal house is built with guaranteed income sources. We may commonly consider this the “three-legged stool”.
ownership of your own situation to make a properly informed decision that is right for you, and ultimately what is right for your
The first leg is their Social Security, the second leg is (or has
clients? This question will serve as the footing for the remainder of
historically been) their company pension, and of course the
this post….to deliver a simple framework to help you make a simple
remaining shortfall to provide for their basic needs and wants must
honest assessment of why these products ultimately exist, and how
be provided for from their assets. This is where your expertise comes
they can potentially serve you and your clients in an uncertain world.
into play. In your infinite wisdom, how will you ensure that your
28 | CONNECTIONS MAGAZINE